the Legal Pitfalls
If you're going to extend credit and to do some of your own
debt collecting, you'll need to be aware of the basic guidelines
for what you can and cannot do. Here's an overview of the legal
rules you'll have to obey.
Disclosure of interest rates and terms. The Fair
Billing Credit Act requires you to disclose your credit terms to
certain of your customers. The law does not apply to commercial
transactions. Therefore, it will not apply to you unless you
have sold on credit to an individual any personal,
family, household, or agricultural goods. Essentially, you have
to tell them clearly and conspicuously what the annual
percentage rate or the finance charge is and of their right to
rescind certain transactions.
Debt collection practices. The Fair Debt Collection
Practices Act prohibits what are called abusive, deceptive, and
unfair debt collection practices. They do not apply to you if
you are collecting on your own behalf but they do apply to a
lawyer or collection agency who may be acting on your behalf.
Since you are legally responsible for what your lawyer or
collection agency does, you should be aware of these laws. Even
if you are collecting a debt yourself, it's a good practice to
follow these guidelines. Here are the highlights:
- The laws apply only to efforts to collect from
individuals. They do not apply to efforts to collect from
- You cannot contact an individual debtor before 8 a.m. or
after 9 p.m., unless you have his permission. You cannot
contact a debtor at any other inconvenient or unusual time
- If you know the debtor is represented by an attorney, you
cannot contact the debtor directly, without his permission.
Instead, you must contact the attorney.
- You cannot contact the debtor at his place of employment,
if you know or have reason to know that the employer
prohibits such communication.
- Unless you have permission from the debtor, the only
people you can contact about the debt are the debtor, his
attorney, or a consumer reporting agency (if permitted by
law). You cannot contact family members or his employer.
- If the debtor notifies you in writing that he will not pay
the debt or that he wants you to stop contacting him, you
cannot contact him again except in a few limited situations,
most notably to inform him you're invoking specified
remedies. (This exception allows you to serve him with a
complaint if you decide to file suit against him.)
- You cannot contact a debtor if you have notice that the
debtor has filed for bankruptcy.
Harassment or abuse. The Fair Debt Collection
Practices Act also says that debt collectors cannot harass or
abuse your customer when collecting a debt. Here are some of the
things you cannot do:
- You cannot threaten your customer with violence or other
- You cannot use obscene or profane language to abuse your
customer (even if the customer uses it first)!
- You cannot publish a list of customers who don't pay their
debts, except to a credit reporting agency.
- You cannot advertise the sale of a customer's debt for the
purpose of coercing him to pay.
- You cannot repeatedly call him on the telephone.
- You cannot call him without telling him who you are.
False or misleading representations. The Fair Debt
Collection Practices Act also says that debt collectors cannot
give misleading statements to the debtor. Here are some of the
things you cannot do:
- You cannot claim to be a lawyer if you aren't one.
- You cannot say that the failure to pay the debt will land
the debtor in prison.
- You cannot threaten the debtor with any action that cannot
be legally taken.
- You cannot threaten to reveal false credit information
about the creditor in order to get him to pay the debt.
Unfair practices. The Fair Debt Collection Practices
Act says that debt collectors cannot use what are called unfair
tactics to collect debts. Here are some of the things you can't
- You cannot try to collect an amount (such as interest)
unless you are authorized by the agreement to collect it.
- You cannot threaten to deposit a postdated check before
the date on the check.
- You cannot communicate by post card with a debtor about
Pursuing payment by individual corporate officers. The
Uniform Commercial Code is a series of model laws governing
commercial transactions that have been adopted in full or in
part by every state except Louisiana. For the most part, you can
leave the inner workings of the UCC to your lawyer. There is,
however, one provision that you may want to keep in mind. If you
do business with a corporation and it writes you a check, pay
particular attention to how the check is signed. If the
corporate officer who signs the check signs it without reference
to a title or a capacity, he or she is personally liable for the
amount. In most cases, this won't matter. But if the company
should go out of business or declare bankruptcy before you're
paid, which can happen, you can still pursue payment from the
Price discrimination. The federal Robinson-Patman Act
forbids price discrimination. Although this law shouldn't come
up much, you might want to know that it exists. You're not
supposed to charge different prices to different customers
unless the difference is due to differences in the manufacture,
sale, or delivery of the goods or services. So, the question
arises: can you charge your uncle a lower price without
violating the law? Of course you can, so long as you're not
giving the discount for the purpose of lessening competition or
creating a monopoly.